KEY INVESTMENT HIGHLIGHTS

• 2QFY24 core PATAMI was largely within expectation
• Continued strong load factor of 90% in 2QFY24
• Targeting 82% seat capacity recovery in 3QFY24
• No changes to earnings estimates
• Maintain BUY with an unchanged TP of RM1.06

Within expectations. Capital A Berhad (Capital A) reported core losses of -RM51.2m during the seasonally weaker period in 2QFY24, bringing the core PATAMI for 1HFY24 to RM221.1m, which represents 40%/42% of our/consensus full-year forecast. However, we consider this result to be largely in line with expectations, as we anticipate stronger performance in upcoming quarters due to further fleet reactivation and stronger USDMYR.

Quarterly. EBIT saw a substantial increase (+184.2%yoy) due to greater capacity, strong load factors, and higher yields. With 82% of its aircraft in operation, the airlines (excluding Cambodia) were able to recover 79% of their seat capacity, achieving an average load factor of 90%. Yield improved as RASK (+20.3%yoy) grew faster than CASK (+4.3%yoy). Quarter-on-quarter EBIT decreased by -58%qoq due to the typical seasonal slowdown. The revenue decline of -7.2%qoq was primarily due to a decrease in average fare (-9.1%qoq) despite a relatively stable number of passengers carried (+1.5%qoq). Notably, Move Digital turned EBITDA positive (+103.4%qoq) in 2QFY24, with cost reductions from AirAsia MOVE offsetting the EBITDA losses from BigPay.

Outlook. By the end of FY24, Capital A aims to have 195 operational aircraft, marking an increase of +17 aircraft from 2QFY24. This expansion will increase the operational fleet from 82% to 89%, in addition to the delivery of 8 more aircraft in 2HFY24. In 3QFY24, passenger traffic is anticipated to return to 89% of pre-pandemic levels aided by an 82% recovery in capacity compared to 2019. The extension of visa-free travel from China until the end of FY25, coupled with robust demand growth, is driving significant increases in capacity: up +30%qoq in China and +10% above pre-pandemic levels in India. Among the favourable factors, the strengthening of the MYR against the USD is beneficial since its costs are primarily in USD, with a significant portion attributed to jet fuel expenses.

Maintain BUY. No changes were made to our earnings estimates. Our target price remains unchanged at RM1.06 (based on 8x FY24 EPS). The stock is currently trading at 4.9x FY25F or -1SD below its pre-COVID average, so we are maintaining our BUY call. The potential downside risk to earnings is higher-than-expected maintenance costs related to fleet reactivation.

Source: MIDF Research - 30 Aug 2024